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How Does AstraZeneca's Debt Look?

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Over the past three months, shares of AstraZeneca Inc. (NYSE: AZN) rose by 7.70%. Before we understand the importance of debt, let's look at how much debt AstraZeneca has.

AstraZeneca's Debt

Based on AstraZeneca’s financial statement as of July 28, 2016, long-term debt is at $16.95 billion and current debt is at $2.06 billion, amounting to $19.00 billion in total debt. Adjusted for $3.92 billion in cash-equivalents, the company's net debt is at $15.09 billion.

To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering AstraZeneca’s $64.42 billion in total assets, the debt-ratio is at 0.3. Generally speaking, a debt-ratio more than 1 means that a large portion of debt is funded by assets. As the debt-ratio increases, so the does the risk of defaulting on loans, if interest rates were to increase. Different industries have different thresholds of tolerance for debt-ratios. A debt ratio of 40% might be higher for one industry, whereas average for another.

Why Investors Look At Debt?

Debt is an important factor in the capital structure of a company, and can help it attain growth. Debt usually has a relatively lower financing cost than equity, which makes it an attractive option for executives.

However, due to interest-payment obligations, cash-flow of a company can be impacted. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.

 

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